Sergio Aguero had given Manuel Pellegrini's side an early lead, but City romped to victory in the second half with Yaya Toure, Edin Dzeko, Stevan Jovetic and Vincent Kompany all getting in on the act.
Toure's goal came from the penalty spot after Danny Rose had been harshly dismissed for a lunge on Dzeko and, although Sherwood disagreed with referee Andre Marriner's decision - influenced by his assistant, the Tottenham head coach conceded his side were second-best.
Tottenham came away from the Etihad Stadium on the end of a 6-0 hammering in November and Sherwood believes City are worthy title contenders, hailing their attacking brand of football.
He said: "I think Andre got it right initially when he called it a corner, unfortunately for us the linesman decided that Andre got it wrong and he's given the penalty.
"It's a last-ditch tackle so he's having to lunge in there a bit but he's having to do that because Dzeko's bearing down on goal, he clearly wins the ball.
"It made a difference to the scoreline but they were excellent, you've got to hold your hands up.
"They worked us all over the pitch and attack from all angles and this team are the best team in the league by a country mile.
"Without question, in my opinion this is the champions of the league.
"Unfortunately for everyone they play, they don't score one and shut up shop they keep coming at you and if anyone's going to win the league you want a team like this to go on and do it because they entertain.
"It's not great for an opposition manager believe me because they put you to the sword and that's how football should be played in my opinion."
‘After Manchester City’s recent form, maybe they’re the underdogs against Manchester United!’ Former Red Devils defender on this weekend’s derby
‘Arteta, Alonso, Emery, me… none of us were physical players – we needed the understanding of the game. That probably helped us move into management’: Premier League boss reveals reasons for natural career progression
